FSLG Free Tax Forum. CP2100 & Backup Withholding. Lori Stieber, Revenue Agent Internal Revenue Service Federal, State, and Local Government June 2014

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1 FSLG Free Tax Forum Lori Stieber, Revenue Agent Internal Revenue Service Federal, State, and Local Government June Governments/Educational-Resources 3 1

2 What is this forum today all about? Getting Fan Mail from the IRS? Do you know what to do next? Who should you contact? Could you have prevented this? Tax law provides that payers to vendors for services and other payments may be required to withhold a percentage of certain reportable payments made to vendors for whom an information return was filed that contained a missing or incorrect Taxpayer Identification Number (TIN). 4 Basic Compliance Requirements Withholding Rate is 28% Withhold from payment & Deposit with IRS Report with Form 945 Refresh by visiting: Businesses-&-Self-Employed/Backup-Withholding-B-Processes 5 The vendor refuses or neglects to provide a TIN. What should I do? Begin backup withholding immediately on any reportable payments over $600. You must continue to request the TIN annually until received. 6 2

3 How do I know if a vendor TIN is incorrect? After the submission of Form 1099 information returns, the IRS sends you a CP2100 or a CP2100A Notice and a listing of incorrect Name/TIN(s) reported on those forms. CP2100/A is a Notice that tells a payer that he or she may be responsible for backup withholding. The Notice is accompanied by a listing of missing, incorrect, and/or not currently issued payee TINs. 7 What should I do if I receive a CP2100/A Notice? Compare the listing(s) with your records. Are you missing TINs? Begin Backup Withholding immediately and continue until you receive a TIN. You must make up to three solicitations for the TIN (initial, first annual, second annual), to avoid a penalty. Deposit (FTD) penalties (IRC 6656) Failure to File (FTF) and Failure to Pay (FTP) penalties (IRC 6651) Interest 8 Incorrect TIN s & Missing TIN s TIN missing status: > or < 9 numbers any alpha character Missing SSN: Missing SSN: TIN incorrect : TIN format is good but Name/TIN combo is not TIN/Name combo can t be found on IRS or SSA files. 9 Missing EIN: P Good SSN/EIN: /

4 Compare the accounts on the listing from the IRS with your vendor records. If they agree, send the appropriate B Notice to the payee. If an account does not agree, this could be the result of a recent update to SSA records, an error in the information you submitted, or an IRS processing error. Correct or update your records, if necessary. Remember: You do not have to call or write to the IRS to say that you made the correction or update to your records. 10 What is a B Notice? The B Notice is a B ackup withholding notice. There are two -- the First B Notice and the Second B Notice. You send the First B Notice with a Form W-9 to the vendor identified by the IRS with CP2100 or CP2100A Notice to solicit a correct Name/TIN combination. You send the second B Notice to a vendor after you receive a second CP2100 or CP2100A Notice within a 3 calendar year period. Refer to Publication 1281 and the CP2100 Notice you received for instructions. 11 FIRST B NOTICE 4

5 SECOND B NOTICE When Do I Send the First B Notice? 15 business days from the date of the CP2100A or CP2100 Notice, or the date you received it (whichever is later), to send a first B Notice with Form W-9 to a vendor. Incorrect TIN response: send a B Notice to a vendor whose Name/TIN combination and account number on your records agrees with the combination that IRS identified as incorrect. 14 Second B Notice Send the Second B Notice w/reply envelope to the vendor within 15 business days. No Form W-9 with the Second B Notice. Date B notice no later than 30 business days after the date of the CP2100/CP2100A Notice or the date you received it (whichever is later). The outer mailing envelope must be clearly marked IMPORTANT TAX INFORMATION ENCLOSED or IMPORTANT TAX RETURN DOCUMENT ENCLOSED. The payee must go to their local SSA office to have his or her social security number validated on Form SSA-7028, Notice to Third Party of Social Security Number Assignment. If the TIN is an EIN, the payee must contact the IRS to get his or her employer identification number validated on the IRS Letter 147C. 15 5

6 Second B Notice (cont d.) Allow 30 business days after the date of the Second B Notice to receive SSA Form 7028 from the SSA or Letter 147C from the payee. You may begin backup withholding anytime during the 30 business day period. You must begin backup withholding by the 30th day if you have not receive Form SSA-7028 or Letter 147C. Backup withhold until you receive the validation. 16 When should I begin withholding? Withhold from payments to vendors who do not respond w/w-9 to First B notice no later than 30 days after the date of the CP2100 Notice or the date you received it or as soon as the date you receive the Notice. Stop no later than 30 days after you receive a W-9. Begin withholding based on the Second B Notice if you do not receive a L147C (IRS) or Social Security Number printout from SSA by the 30 th business day or anytime during that 30 days. Stop after receiving verification. 17 It is your responsibility to send the appropriate B notice to the vendor. The required verification of ID may not be solicited by telephone. You are not required to file a corrected Form 1099 with the new information unless the dollar amounts reported did also change. 18 6

7 Third and Subsequent Notices Generally, you may ignore a third or subsequent notice of missing incorrect TIN(s) However, if the CP2100/CP2100A Notice and listing(s) relate to the same payee, but with a different Name/TIN combination than on the first and second notice, you must treat the notice as a first notice. 19 Common Situations: 1. If you know that an account was corrected, do not send a "B" Notice to the vendor. 2. If you made an error processing the 1099 and you know you have the correct information update your records and use the correct information now. Do not send a "B" Notice to the payee. 3. Vendor response to the First B Notice resulted in the same data as on file. Just keep the new certified Form W-9 on file. Do not backup withhold. 4. Send B Notices to vendors that you no longer use as well. Try to get the correct TIN. Document your efforts for the two in three year rule. Track these accounts for three years after the date of the first Notice 20 FORM 945 7

8 What form do I use to report backup withholding? Report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. Refer to these resources from irs.gov for details: Form 945 & Instructions Pub. 15, (Circular E), Employer s Tax Guide. The Information Reporting Program Customer Service Section o Toll-Free Telephone (866) o mccirp@irs.gov o Hours...8:30 am to 4:30 p.m. M - F (EST) 22 Taxpayer Identification Number Matching TIN Matching ~ a part of E-Services Pre-filing service Match up to 25 taxpayer identification number and name combinations Results returned within seconds. Prevent Notices and penalties for the payer. 23 REGISTRATION To register: search for e-services on IRS.gov see Publication 3112 Requires an application for TIN Matching See Publication 2108A or call

9 Social Security Number Verification Service (SSNVS) Available 24 hours a day, 7 days a week. To learn more about SSNVS, download and read the handbook available at ssa.gov/employer/ssnvshandbk/ssnvs_bso.htm Join Us Next Time July 30 th Independent Contractor or Employee? 9